RSM to pay $950K for violating auditor independence rules

The Securities and Exchange Commission said Tuesday it has charged RSM US LLP, the fifth largest accounting firm in the country, with violating auditor independence rules with at least 15 of the firm’s audit clients and over 100 audit reports.

The SEC found that RSM US and other member firms of the RSM International network, provided non-audit services to, and had an employment relationship with, affiliates of RSM US audit clients, in violation of the SEC’s auditor independence rules. The prohibited services included payment facilitation, payroll outsourcing, loaned staff, financial information system design or implementation, bookkeeping, internal audit outsourcing, corporate secretarial services and investment adviser services. The prohibited employment relationship involved a partner at an RSM International member firm in Australia who served on a voluntary basis as a member of the board of an affiliate of an audit client.

RSM defended its conduct in a statement from the firm forwarded by spokesperson Kim Bartok. “Notably, the SEC makes no finding that RSM’s objectivity or impartiality — bedrock elements to auditor independence — were impaired, and specifically finds that ‘[i]n each instance, the audit teams were unaware of the prohibited non-audit services or relationship.’ Many of the issues that are the subject of the order are similar to those facing other firms, as shown by the significant public commentary from the profession on the SEC’s rule, Auditor Independence with Respect to Certain Loans or Debtor-Creditor Relationships, in 2018. RSM supports the efforts by the SEC and accounting profession to review the application and impact of the independence rules in the context of performing non-audit services in today’s world which spawns complex, attenuated global business relationships.”

Without admitting or denying the charges, RSM US agreed to pay a $950,000 penalty and be censured by the SEC. The Chicago-based firm, formerly known as McGladrey & Pullen, also agreed to engage an independent consultant to evaluate its quality control system to comply with auditor independence requirements for non-audit services. The SEC said it considered remedial acts undertaken by the firm in deciding to accept RSM US’s offer of settlement.The SEC found that some of RSM US’s independence controls were inadequate, so the firm failed to identify and avoid the prohibited non-audit services and employment relationship. The violations happened in 2014 and 2015, and some violations went undetected until 2016 or later.

“The SEC’s auditor independence rules specifically prohibit audit firms from providing certain non-audit services,” said Carolyn Welshhans, associate director of the SEC’s Division of Enforcement, in a statement. “Audit firms must put in place procedures, training, and systems that provide a reasonable assurance of independence, and they must monitor for independence on an ongoing basis.”

RSM pointed out it has improved its independence controls in recent years. “During the years subsequent to 2013, RSM has significantly enhanced its independence controls," said the firm. "The SEC specifically credits RSM for the remedial measures it has taken ‘to enhance its existing policies, procedures, systems, and training over time regarding auditor independence’ including with respect to training, discipline, client acceptance and continuance procedures, personnel and conflicts checks."

“Nonetheless, RSM is continuing to analyze and consider ways that it can further strengthen its independence processes, procedures and controls and is embracing this as an opportunity to emerge as a leader in this arena," the firm added. "RSM is committed to the highest standards of integrity and audit quality and looks forward to continuing to provide the excellence in auditing its clients have come to expect of RSM.”

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